Taxi Medallions and Economic Inequality

We tend to think of government regulation of private enterprise as created for the sole purpose of ensuring the safety or well-being of citizens. Certainly, this tends to be the only framing device used by regulatory bodies when communicating these policies to the public. But accepting this uncritically is incredibly dangerous.

Taxi medallion systems in major cities across the U.S. serve as an instructive example of how regulatory systems often do much more than provide safety or a feeling of safety. Regulations can create barriers to entry that serve powerful entrenched interests at the direct expense of the least powerful.

A taxi medallion is a sort of license that authorizes a vehicle to operate as a taxi within a given city. City taxi commissions install hard caps on the number of taxi medallions that are authorized, effectively limiting the number of vehicles that may legally be utilized for taxi services. As of 2009, the number of authorized medallions in New York City was 13,273. The scarcity of NYC taxi medallions is so extreme that in 2011 two medallions – not taxis, just the license itself – were sold for $1,000,000 each.

Taxi medallion regulations create power structures that can be exploited by the powerful at the expense of the weak. This happens in two distinct ways. First, taxi medallion systems establish a hard cap on operating vehicles, turning the right to operate a taxi business into a privilege that can be granted to favored interests. Secondly, these caps institutionalize artificial scarcity, causing the medallions themselves to be worth hundreds of thousands of dollars. This serves as a severe barrier to entry that prices the economically weak out of the market. In short, taxi medallions are an example of a regulatory power that is used chiefly not to provide safety but to ensure that the most powerful interests face as little competition as possible from the least powerful interests. Taxi medallions are a clear example of corporate power and government power colluding to protect the powerful at the expense of the weak. They create, on a deep level, inequalities in the right to earn a living.

These facts were thrown into high relief by the 2011 controversy over D.C.’s plan to institute a taxi medallion program in place of its relatively open system. Owner-operators were directly threatened by the proposed medallion plan, which would reduce the number of operating cabs by 1/3 and give privileged access to the now-reduced licenses to grandfathered-in drivers and large cab companies. At a protest, one of the threatened entrepreneurs had this to say: “We will continue to struggle for the continuation of the guarantee of our rights to earn a living. We know tyranny when we smell it, and we are not going to take this stinking smell again.” [credit: Reason TV http://reason.com/reasontv/2011/07/07/dc-medallion].

You don’t have to be against regulation in general to see the discriminatory abuses of power endemic to regulatory systems such as taxi medallions. This is why, back in 2011, journalists from such ideologically diverse sources as reason magazine, slate, and think progress all came out against D.C.’s medallion plan. Rather than falling along any sort of left-right spectrum, each source criticizes the policy as serving little purpose other than to entrench the interests of the powerful at the expense of those of the weak.

This is exactly the sort of meeting point between libertarian-leaning and progressive-leaning points of view that we hope to explore here at Unfettered Equality. No one likes to see our institutions being utilized by the strong to bully everyone else.

4 thoughts on “Taxi Medallions and Economic Inequality”

This is actually something I’ve been thinking about a bit recently with the growth of Lyft and Uber as alternative taxi services. Previously cab companies/medallion holders had a monopoly on driving people around, and as a result we still have to call cabs on a phone, it cost $20 to drive a few miles downtown, and there are still drivers who refuse to take cards. Now that Uber has gone to court a few times and won the right to have drivers without medallions, we have multiple incredibly convenient and affordable alternatives that also have some accountability thanks to the rating systems in those apps, making service better overall. Nice post, thanks.

The increase in competition is better for drivers overall as well, Chris. The drivers I’ve spoken to who work with Uber are generally happier with the service, make more money because overhead costs are cheaper, and the addition of more operators to the market means competition for labor — this means more favorable terms and workplace treatment for drivers.